15962 Federal Register / Vol. 70, No.
59 / Tuesday, March 29, 2005 / Notices
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing also will be available for
inspection and copying at the principal
office of FICC and on FICC’s Web site
at http://www.ficc.com/gov/
gov.docs.jsp?NS-query. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
All submissions should refer to File
Number SR–FICC–2004–17 and should
be submitted on or before April 19,
2005.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.10
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1382 Filed 3–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51410; File No. SR–ISE–
2004–27]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change and
Amendments No. 1 and No. 2 by the
International Securities Exchange, Inc.,
Relating to Trading Options on
Reduced Values of the NYSE U.S. 100
Index, the NYSE International 100
Index, the NYSE World Leaders Index,
and the NYSE TMT Index, Including
Long-Term Options
March 22, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 23,
2004, the International Securities
Exchange, Inc. (‘‘ISE’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
items I, II and III below, which items
have been prepared by the ISE. The ISE
submitted Amendments No. 1 and No.
2 to the proposal on January 5, 2005,3
10 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 set forth a list of the
underlying components of the NYSE Indexes.
VerDate jul<14>2003 17:01 Mar 28, 2005 Jkt 205001
and March 1, 2005, respectively.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE is proposing to amend its
rules to trade options on three broad-
based indexes and one narrow-based
index, whose components currently
trade on the New York Stock Exchange,
Inc (‘‘NYSE’’). The NYSE U.S. 100
Index, the NYSE International 100 Index
and the NYSE World Leaders Index are
all broad-based indexes. The NYSE
TMT Index is a narrow-based index.
Options on these indexes would be
cash-settled and would have European-
style exercise provisions.
The text of the proposed rule change
is available on the ISE’s Web site
(http://www.iseoptions.com), at the
ISE’s Office of the Secretary, and at the
Commission.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
ISE included statements concerning the
purpose of, and basis for, the proposed
rule change and discussed any
comments it received on the proposed
rule change, as amended. The text of
these statements may be examined at
the places specified in Item IV below.
The ISE has prepared summaries, set
forth in sections A, B and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
rules to provide for the listing and
trading on the Exchange of cash-settled,
European-style, index options on the
NYSE U.S. 100 Index, the NYSE
International 100 Index, and the NYSE
World Leaders Index (the ‘‘Broad Based
NYSE Indexes’’) and the NYSE TMT
Index (the ‘‘Narrow Based NYSE
Index’’) (collectively, the ‘‘NYSE
Indexes’’).5 Specifically, the Exchange
4 Amendment No. 2 replaced the original filing in
its entirety, proposed a reduce number of contracts
for position and exercise limits, addressed one of
the events that the Exchange will monitor on an
annual basis, and made other technical corrections
to the filing.
5 A description of each of the NYSE Indexes can
be found on the NYSE’s Web site at http://
www.nyseindexes.com.
PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
proposes to list options based upon (i)
one-tenth of the value of the NYSE
Indexes (‘‘Mini Index Options’’) and (ii)
one one-hundredth of the value of the
NYSE Indexes (‘‘Micro Index Options’’).
In Amendment No. 2, which replaced
the original filing in its entirety, the ISE
proposed a reduced number of contracts
for position and exercise limits,
addressed one of the events that the
Exchange will monitor on an annual
basis, and made other technical
corrections to the filing.
Index Design and Composition
The NYSE Indexes are designed to be
a comprehensive representation of the
investable United States equity market.
Each NYSE Index is a float-adjusted
capitalization-weighted index,6 whose
components are all traded on the NYSE.
NYSE U.S. 100 Index
The NYSE U.S. 100 Index tracks the
top 100 U.S. stocks trading on the
NYSE. The companies represented have
a market capitalization of $5.95 trillion,
which covers 47% of the entire market
capitalization of U.S. companies and
over 62% of U.S. companies listed on
the NYSE. Additionally, these
companies are major market
participants, most of which are well-
known household names. This fact,
along with the NYSE’s significant U.S.
market penetration, ensures that this
index will closely track the entire U.S.
market. This index is designed to assist
investors looking to track the U.S.
market across 10 industry sectors, as
defined by Dow Jones & Company
(‘‘Dow Jones’’).
The NYSE U.S. 100 Index is
calculated using a rules-based
methodology that is fully transparent.
Its original selection pool includes all
U.S. stocks listed on the NYSE. The
entire index universe is ranked in
descending order by unadjusted market
capitalization. If a component has
multiple share classes, the most liquid
issue for that company is included.
Companies that fail a liquidity test, i.e.,
average trading volume of 100,000
shares for the preceding three months,
are removed. The top 100 companies are
then selected from the remaining
universe, and the index is weighted by
float-adjusted market capitalization.
The index is reviewed quarterly, with
an 80–120 buffer applied to limit
6 The calculation of a float-adjusted, market-
weighted index involves taking the summation of
the product of the price of each stock in the index
and the number of shares available to the public for
trading, rather than the total shares oustanding for
each issue. In contrast, a price-weighted index
involves taking the summation of the prices of the
stocks in the index.
29MRN1
 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
turnover. When the universe is ranked
by market capitalization, all stocks in
the top 80 are automatically included in
the index, while all stocks ranked below
120 are automatically excluded. The
remaining components are selected from
stocks falling between 80 and 120,
starting with the highest ranked
component. In addition to the
scheduled quarterly review, the index is
reviewed on an ongoing basis to
accommodate extraordinary events,
such as delistings, bankruptcies,
mergers or acquisitions involving index
components.
The NYSE U.S. 100 Index
components are classified in ten market
sectors. As of March 18, 2004, these
sectors and their respective weightings
were: Basic Materials (1.9%); Consumer,
Cyclical (13.4%); Consumer, Non-
Cyclical (11.4%); Energy (7.5%);
Financial (23.3%); Healthcare (18.7%);
Industrial (10.7%); Technology (5.9%);
Telecommunication (6.7%); and
Utilities (0.5%).
As set forth in Exhibit 3 to the
proposal, as of March 18, 2004,
following are the characteristics of the
NYSE U.S. 100 Index: (i) The total
capitalization of all of the components
in the Index is $6.166 trillion; (ii)
regarding component capitalization, (a)
the highest capitalization of a
component is $310.02 billion (General
Electric), (b) the lowest capitalization of
a component is $17.13 billion (Kohl’s
Corp.), (c) the mean capitalization of the
components is $61.665 billion, and (d)
the median capitalization of the
components is $40.673 billion; (iii)
regarding component price per share, (a)
the highest price per share of a
component is $106.82 (Genentech), (b)
the lowest price per share of a
component is $11.16 (Liberty Media
Group), (c) the mean price per share of
the components is $48.53, and (d) the
median price per share of the
components is $44.40; (iv) regarding
component weightings, (a) the highest
weighting of a component is 5.03%
(General Electric), (b) the lowest
weighting of a component is 0.28%
(Kohl’s Corp.), (c) the mean weighting of
the components is 1.0%, (d) the median
weighting of the components is 0.66%,
and (e) the total weighting of the top
five highest weighted components is
22.2% (General Electric, ExxonMobil,
Pfizer, Citigroup, Wal-Mart Stores); (v)
regarding component available shares,
(a) the most available shares of a
component is 9.98 billion (General
Electric), (b) the least available shares of
a component is 206 million
(Genentech), (c) the mean available
shares of the components is 1.396
billion, and (d) the median available
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shares of the components is 918.3
million; (vi) regarding the six month
average daily volumes of the
components, (a) the highest six month
average daily volume of a component is
22.428 million (AT&T Wireless), (b) the
lowest six month average daily volume
of a component is 906,810 (SunTrust
Banks), (c) the mean six month average
daily volume of the components is 5.376
million, (d) the median six month
average daily volume of the components
is 4.082 million, (e) the average of six
month average daily volumes of the five
most heavily traded components is
18.953 million (AT&T Wireless, General
Electric, Pfizer, Time Warner, Motorola),
and (f) 100% of the components had a
six month average daily volume of at
least 50,000; and (vii) regarding option
eligibility, (a) 100% of the components
are options eligible, as measured by
weighting and (b) 100% of the
components are options eligible, as
measured by number.
NYSE International 100 Index
The NYSE International 100 Index is
designed to assist investors seeking to
track international markets. This index
tracks the 100 largest non-U.S. stocks
trading on the NYSE. It covers 27.1% of
the international stock market and has
a total market capitalization of $3.8
trillion. Currently, the components of
the NYSE International 100 Index
represent 18 countries.7 All of the
components of this index are priced on
the NYSE during U.S. trading hours. ISE
believes its limited number of
components and intraday pricing makes
the NYSE International 100 Index
suitable for tracking the non-U.S. market
and for use as the basis for investable
products.
The NYSE International 100 Index is
also calculated using a rules-based
methodology that is fully transparent.
7 According to the ISE, 98 of the 100 underlying
components in the NYSE International 100 Index
meet ISE’s listing criteria for equity options as set
forth in ISE Rule 502. This represents 97.93% of the
index by market capitalization weight and 98% by
number. Two American Depository Receipts
(‘‘ADRs’’) underlying the NYSE International 100
Index, Allianz AG (‘‘AZ’’) and Telefonica Moviles
SA (‘‘TEM’’), do not meet the requirements of ISE
Rule 502, because the NYSE does not have in place
an effective surveillance sharing agreement with the
primary exchange in the home country where AZ
and TEM are traded. However, the U.S. market for
the underlying ADRs is at least 50% or more of the
worldwide trading volume. The Commission
believes that it is appropriate to permit the listing
of options on an ADR without the existence of a
comprehensive surveillance agreement with the
foreign market where the underlying component
trades, as long as the U.S. market for the underlying
ADR is at least 50% or more of the worldwide
trading volume. Telephone conversation between
Samir Patel, Assistant General Counsel, ISE, and A.
Michael Pierson, Attorney, Division, Commission
(March 21, 2005).
PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
15963
Its original selection pool includes all
non-U.S. stocks listed on the NYSE. The
entire index universe is ranked in
descending order by unadjusted market
capitalization. If a component has
multiple share classes, the most liquid
issue for that company is included.
Companies that fail a liquidity test, i.e.,
average trading volume of 100,000
shares for the preceding three months,
are removed. The top 100 companies are
then selected from the remaining
universe, and the index is weighted by
float-adjusted market capitalization.
The index is reviewed quarterly, with
an 80–120 buffer applied to limit
turnover. When the universe is ranked
by market capitalization, all stocks in
the top 80 are automatically included in
the index, while all stocks ranked below
120 are automatically excluded. The
remaining components are selected from
stocks falling between 80 and 120,
starting with the highest ranked
component. In addition to the
scheduled quarterly review, the index is
reviewed on an ongoing basis to
accommodate extraordinary events,
such as delistings, bankruptcies,
mergers or acquisitions involving index
components.
The NYSE International 100 Index
components are classified in ten market
sectors. As of March 18, 2004, these
sectors and their respective weightings
were: Basic Materials (3.1%); Consumer,
Cyclical (11.1%); Consumer, Non-
Cyclical (5.2%); Energy (17.7%);
Financial (27.7%); Healthcare (12.0%);
Industrial (1.1%); Technology (8.3%);
Telecommunication (10.6%); and
Utilities (3.2%).
As set forth in Exhibit 3 to the
proposal, as of March 18, 2004,
following are the characteristics of the
NYSE International 100 Index: (i) The
total capitalization of all of the
components in the Index is $4.308
trillion; (ii) regarding component
capitalization, (a) the highest
capitalization of a component is
$182.444 billion (BP plc), (b) the lowest
capitalization of a component is $4.99
billion (Rinker Group), (c) the mean
capitalization of the components is
$43.086 million, and (d) the median
capitalization of the components is
$30.612 million; (iii) regarding
component price per share, (a) the
highest price per share of a component
is $117.73 (National Australia Bank), (b)
the lowest price per share of a
component is $5.33 (United
Microelectronics), (c) the mean price per
share of the components is $37.73, and
(d) the median price per share of the
components is $33.91; (iv) regarding
component weightings, (a) the highest
weighting of a component is 4.23% (BP
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 15964 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
plc), (b) the lowest weighting of a
component is 0.05% (Rinker Group), (c)
the mean weighting of the components
is 1.0%, (d) the median weighting of the
components is 0.71%, and (e) the total
weighting of the top five highest
weighted components is 16.96% (BP
plc, Vodafone, HSBC Holdings, Toyota,
and GlaxoSmithKline); (v) regarding
component available shares, (a) the most
available shares of a component is 6.82
billion (Vodafone), (b) the least available
shares of a component is 93.55 million
(Rinker Group), (c) the mean available
shares of the components is 1.581
billion, and (d) the median available
shares of the components is 1.079
million; (vi) regarding the six month
average daily volumes of the
components, (a) the highest six month
average daily volume of a component is
39.803 million (Nortel), (b) the lowest
six month average daily volume of a
component is 9,150 (Westpac Banking),
(c) the mean six month average daily
volume of the components is 1.054
million, (d) the median six month
average daily volume of the components
is 197,450, (e) the average of six month
average daily volumes of the five most
heavily traded components is 13.023
million (Nortel, Nokia, Taiwan
Semiconductor, United
Microelectronics, BP plc), and (f) 79%
of the components had a six month
average daily volume of at least 50,000;
and (vii) regarding option eligibility, (a)
88.15% of the components are options
eligible, as measured by weighting and
(b) 79% of the components are options
eligible, as measured by number.
NYSE World Leaders Index
The NYSE World Leaders is designed
to serve as a benchmark to track, as a
single asset class, the performance of
200 world leaders across 10 industry
sectors and all regions of the world.
This index is constructed by combining
the NYSE U.S. 100 Index and NYSE
International 100 Indexes. The
components of the NYSE World Leaders
Index have a total market capitalization
of $9.7 trillion and cover 36.7% of the
market capitalization of the world
markets. It is well diversified across 10
industry sectors, as defined by Dow
Jones, and currently represents 19
countries, including the United States.
All of the components of this index are
priced on the NYSE during U.S. trading
hours. The ISE believes the limited
number of components and intraday
pricing makes the NYSE World Leaders
Index suitable for tracking the global
market and for use as the basis for
investable products.
The NYSE World Leaders Index is
also calculated using a rules-based
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methodology that is fully transparent.
Its original selection pool includes all
stocks listed on the NYSE. The index
universes for the NYSE U.S. 100 and
NYSE International 100 are each ranked
in descending order by unadjusted
market capitalization. If a component
has multiple share classes, the most
liquid issue for that company is
included. Companies that fail a liquidity
test, i.e., average trading volume of
100,000 shares for the preceding three
months, are removed. The top 100
companies are then selected from the
remaining stocks in each universe, and
the index is weighted by float-adjusted
market capitalization.
The NYSE U.S. 100 and the NYSE
International 100 Indexes are reviewed
quarterly, with an 80–120 buffer applied
to limit turnover. When the universes
are ranked by market capitalization, all
stocks in the top 80 are automatically
included in the index, while all stocks
ranked below 120 are automatically
excluded. The remaining components
are selected from stocks falling between
80 and 120, starting with the highest
ranked component. In addition to the
scheduled quarterly review, the index is
reviewed on an ongoing basis to
accommodate extraordinary events,
such as delistings, bankruptcies,
mergers or acquisitions involving index
components.
The NYSE World Leaders Index
components are classified in ten market
sectors. As of March 18, 2004, these
sectors and their respective weightings
were: Basic Materials (2.3%); Consumer,
Cyclical (12.6%); Consumer, Non-
Cyclical (9.2%); Energy (11.2%);
Financial (24.1%); Healthcare (16.3%);
Industrial (7.2%); Technology (6.8%);
Telecommunication (8.1%); and
Utilities (1.5%).
As set forth in Exhibit 3 to the
proposal, as of March 18, 2004,
following are the characteristics of the
NYSE World Leaders Index: (i) The total
capitalization of all of the components
in the Index is $10.533 trillion; (ii)
regarding component capitalization, (a)
the highest capitalization of a
component is $310.02 billion (General
Electric), (b) the lowest capitalization of
a component is $4.99 billion (Rinker
Group), (c) the mean capitalization of
the components is $52.668 billion, and
(d) the median capitalization of the
components is $37.291 billion; (iii)
regarding component price per share, (a)
the highest price per share of a
component is $117.73 (National
Australia Bank), (b) the lowest price per
share of a component is $5.33 (United
Microelectronics), (c) the mean price per
share of the components is $43.39, and
(d) the median price per share of the
PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
components is $40.59; (iv) regarding
component weightings, (a) the highest
weighting of a component is 2.94%
(General Electric), (b) the lowest
weighting of a component is 0.05%
(Rinker Group), (c) the mean weighting
of the components is 1.08%, (d) the
median weighting of the components is
0.36%, and (e) the total weighting of the
top five highest weighted components is
12.99% (General Electric, ExxonMobil,
Pfizer, Citigroup, Wal-Mart Stores); (v)
regarding component available shares,
(a) the most available shares of a
component is 9.98 billion (General
Electric), (b) the least available shares of
a component is 93.55 million (Rinker
Group), (c) the mean available shares of
the components is 1.326 billion, and (d)
the median available shares of the
components is 865.3 million; (vi)
regarding the six month average daily
volumes of the components, (a) the
highest six month average daily volume
of a component is 39.803 million
(Nortel), (b) the lowest six month
average daily volume of a component is
9,150 (Westpac Banking), (c) the mean
six month average daily volume of the
components is 3.218 million, (d) the
median six month average daily volume
of the components is 1.73 million, (e)
the average of six month average daily
volumes of the five most heavily traded
components is 24.16 million (Nortel,
AT&T Wireless, General Electric, Pfizer,
Time Warner), and (f) 89.5% of the
components had a six month average
daily volume of at least 50,000; and (vii)
regarding option eligibility, (a) 95.1% of
the components are options eligible, as
measured by weighting, and (b) 89.5%
of the components are options eligible,
as measured by number.
NYSE TMT Index
The NYSE TMT Index is a narrow-
based index. For narrow-based indexes
that meet the standards of an exchange’s
rules, an SRO need only complete Form
19b–4(e) at least five business days after
commencement of trading the new
product. Since the listing of this product
does not meet all of the requirements of
ISE Rule 2002(b), Form 19b–4(e) is not
available for the listing of this product,
giving rise to the need for this filing.
The NYSE TMT Index is designed to
track the top 100 technology, media and
telecommunications stocks listed on the
NYSE. The companies represented have
a market capitalization of $2.3 trillion,
which covers 45.7% of the entire market
capitalization of technology, media and
telecommunication companies globally
and is approximately the same size as
the nearly 4,000 companies in the
Nasdaq Composite Index. All of the
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 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
components of this index are priced on
the NYSE during U.S. trading hours.
The NYSE TMT Index is also
calculated using a rules-based
methodology that is fully transparent.
Its original selection pool includes all
technology, media and
telecommunication stocks listed on the
NYSE. The entire index universe is
ranked in descending order by
unadjusted market capitalization. If a
component has multiple share classes,
the most liquid issue for that company
is included. Companies that fail a
liquidity test, i.e., average trading
volume of 100,000 shares for the
preceding three months, are removed.
The top 100 companies are then
selected from the remaining universe,
and the index is weighted by float-
adjusted market capitalization.
The index is reviewed quarterly, with
an 80–120 buffer applied to limit
turnover. When the universe is ranked
by market capitalization, all stocks in
the top 80 are automatically included in
the index, while all stocks ranked below
120 are automatically excluded. The
remaining components are selected from
stocks falling between 80 and 120,
starting with the highest ranked
component. At the quarterly
rebalancing, market sector weights for
technology, media and
telecommunications are capped at no
more than 40% and the sub-group
weights are capped at no more than
20%. This ensures that one sector or
sub-group does not dominate the index.
In addition to the scheduled quarterly
review, the index is also reviewed on an
ongoing basis to accommodate
extraordinary events, such as delistings,
bankruptcies, mergers or acquisitions
involving index components.
The NYSE TMT Index components
are classified in 14 industry sub-groups
within the technology, media and
telecommunication sectors. As of March
18, 2004, the sub-groups and their
respective weightings were: Advertising
(1.9%); Broadcasting (18.9%);
Communications Technology (11.8%);
Computers (13.0%); Diversified
Technology Services (2.4%);
Entertainment (0.3%); Fixed-line
Communications (20.9%); Internet
Services (0.0%); Office Equipment
(1.2%); Publishing (6.1%);
Semiconductors (10.8%); Technology,
Software (2.8%); Wireless
Communications (9.9%); and Other:
Non-Technology, Media and
Telecommunication (0.0%).
As set forth in Exhibit 3 to the
proposal, as of March 18, 2004,
following are the characteristics of the
NYSE TMT Index: (i) The total
capitalization of all of the components
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in the Index is $2.701 trillion; (ii)
regarding component capitalization, (a)
the highest capitalization of a
component is $165.12 billion (Vodafone
Group), (b) the lowest capitalization of
a component is $2.89 billion (Westwood
One, Inc.), (c) the mean capitalization of
the components is $27.01 billion, and
(d) the median capitalization of the
components is $15.38 billion; (iii)
regarding component price per share, (a)
the highest price per share of a
component is $115.13 (Mobile
Telesystems), (b) the lowest price per
share of a component is $3.93 (Lucent
Technologies Inc.), (c) the mean price
per share of the components is $30.05,
and (d) the median price per share of
the components is $25.98; (iv) regarding
component weightings, (a) the highest
weighting of a component is 6.11%
(Vodafone Group), (b) the lowest
weighting of a component is 0.11%
(Westwood One Inc.), (c) the mean
weighting of the components is 1.0%,
(d) the median weighting of the
components is 0.57%, and (e) the total
weighting of the top five highest
weighted components is 23.62%
(Vodafone Group, International
Business Machines Corp., NTT Docomo
Inc., Verizon Communications, and
Nokia Corp.); (v) regarding component
available shares, (a) the most available
shares of a component is 6.82 billion
(Vodafone Group), (b) the least available
shares of a component is 0.08 billion
(Knight Ridder Inc.), (c) the mean
available shares of the components is
1.37 billion, and (d) the median
available shares of the components is
0.76 billion; (vi) regarding the six month
average daily volumes of the
components, (a) the highest six month
average daily volume of a component is
72.058 million (Lucent Technologies
Inc.), (b) the lowest six month average
daily volume of a component is 1.53
million (Telekom Austria Ag), (c) the
mean six month average daily volume of
the components is 4.138 million, (d) the
median six month average daily volume
of the components is 1.302 million, (e)
the average of six month average daily
volumes of the five most heavily traded
components is 33,526 million (Lucent
Technologies Inc., Nortel Networks
Corp., AT&T Wireless Services Inc.,
Time Warner Inc., and Motorola Inc.),
and (f) 86% of the components had a six
month average daily volume of at least
50,000; and (vii) regarding option
eligibility, (a) 100% of the components
are options eligible, as measured by
weighting and (b) 100% of the
components are options eligible, as
measured by number.
PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
15965
Index Calculation and Index
Maintenance
On March 18, 2004, the index value
for the NYSE U.S. 100, the NYSE
International 100, the NYSE World
Leaders and the NYSE TMT was
5763.80, 4505.70, 5273.40, and 5060.90,
respectively. The Exchange believes that
these levels are too high for successful
options trading. Accordingly, the
Exchange proposes to base trading in
these options on fractions of each of the
NYSE Indexes’ value. In particular, the
Exchange proposes to list (i) Mini Index
Options that are based on one-tenth of
the value of each of the NYSE Indexes
and (ii) Micro Index Options that are
based on one one-hundredth of the
value of each of the NYSE Indexes. The
Exchange believes that listing options
on reduced values will attract a greater
source of customer business than if
options were based on the full value of
the Index. The Exchange further
believes that listing options on reduced
values will provide an opportunity for
investors to hedge, or speculate on, the
market risk associated with the stocks
comprising the NYSE Indexes.
Additionally, by reducing the values of
the NYSE Indexes, investors will be able
to utilize this trading vehicle, while
extending a smaller outlay of capital.
The Exchange believes that this should
attract additional investors, and, in turn,
create a more active and liquid trading
environment.8
The Mini Index Options level and the
Micro Index Options level shall each be
calculated continuously, using the last
sale price for each component stock in
each of the NYSE Indexes, and shall be
disseminated every 15 seconds
throughout the trading day.9 To
calculate the full value of the NYSE
Indexes, the sum of the market value of
8 The concept of listing reduced value options on
an index is not a novel one. See, e.g., Securities
Exchange Act Release Nos. 32893 (September 14,
1993), 58 FR 49070 (September 21, 1993) (order
approving File No. SR–CBOE–93–12) (approving
the listing and trading of options based on one-
tenth the value of the S&P 500 Index); 43000 (June
30, 2000), 65 FR 42409 (July 10, 2000) (notice of
filing and immediate effectiveness of File No. SR–
CBOE–00–15) (listing and trading of options based
on one-tenth of the value of the Nasdaq 100 Index);
and 48681 (October 22, 2003), 68 FR 62337
(November 3, 2003) (order approving File No. SR–
CBOE–2003–14) (approving the listing and trading
of options based on one-tenth of the value of the
NYSE Composite Index).
9 The Mini Index Options level and the Micro
Index Options level shall each be calculated by
Dow Jones on behalf of the NYSE and disseminated
to the Consolidated Quote System (‘‘CQS’’). The
Exchange shall receive those values from CQS and
disseminate them to its members. Each of the NYSE
Indexes is published daily in real-time on the
NYSE’s public website and through, among other
places, major quotation vendors such as Reuters
and Thomson’s ILX.
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 15966 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
the stocks in each of the NYSE Indexes
is divided by the base period market
value (divisor), and the result is
multiplied by 100. To calculate the
value of the Mini Index Options level,
the full value of each of the NYSE
Indexes is divided by ten. To calculate
the value of the Micro Index Options
level, the full value of each of the NYSE
Indexes is divided by one hundred. In
order to provide continuity for each of
the NYSE Indexes’ value, the divisor is
adjusted periodically to reflect such
events as changes in the number of
common shares outstanding for
component stocks, company additions
or deletions, corporate restructurings
and other capitalization changes.
The settlement value for purposes of
settling Mini Index Options (‘‘Mini
Settlement Value’’) and Micro Index
Options (‘‘Micro Settlement Value’’)
shall each be calculated on the basis of
opening market prices on the business
day prior to the expiration date of such
options (‘‘Settlement Day’’).10 The
Settlement Day is normally the Friday
preceding ‘‘Expiration Saturday.’’ 11 In
the event that a component security in
the Index does not trade on Settlement
Day, the closing price from the previous
trading day is used to calculate the
Settlement Value. Accordingly, trading
in Mini Index Options and Micro Index
Options will normally cease on the
Thursday preceding an Expiration
Saturday. Dow Jones shall calculate, and
the Exchange shall disseminate, both
the Mini Settlement Value and the
Micro Settlement Value in the same
manner as the Dow Jones shall
calculate, and the Exchange shall
disseminate, the Mini Index Options
level and the Micro Index Options level.
Dow Jones will monitor and maintain
each of the NYSE Indexes. Dow Jones is
responsible for making all necessary
adjustments to each of the NYSE
Indexes to reflect component deletions,
share changes, stock splits, stock
dividends (other than an ordinary cash
dividend), and stock price adjustments
due to restructuring, mergers, or spin-
offs involving the underlying
components. Some corporate actions,
such as stock splits and stock dividends,
require simple changes to the available
shares outstanding and the stock prices
of the underlying components. Other
corporate actions, such as share
issuances, change the market value of
each of the NYSE Indexes and would
10 The aggregate exercise value of the option
contract is calculated by multiplying the Index
value by the Index multiplier, which is 100.
11 For any given expiration month, options on the
NYSE Indexes will expire on the third Saturday of
the month.
VerDate jul<14>2003 17:01 Mar 28, 2005 Jkt 205001
require the use of an index divisor to
effect adjustments.
Although the Exchange is not
involved in the maintenance of the
NYSE Indexes, the Exchange represents
that it will monitor the NYSE Indexes
on an quarterly basis,12 at which point
the Exchange will notify the Market
Regulation Division of the Commission
if: (i) The number of securities in each
of the NYSE Indexes drops by 1⁄3rd or
more; (ii) 10% or more of the weight of
each of the NYSE Indexes is represented
by component securities having a
market value of less than $75 million;
(iii) less than 80% of the weight of each
of the NYSE Indexes is represented by
component securities that are eligible
for options trading pursuant to ISE Rule
502; (iv) 10% or more of the weight of
each of the NYSE Indexes is represented
by component securities trading less
than 20,000 shares per day; or (v) the
largest component security accounts for
more than 15% of the weight of each of
the NYSE Indexes or the largest five
components in the aggregate account for
more than 40% of the weight of each of
the NYSE Indexes.
The Exchange will notify the Market
Regulation Division of the Commission
immediately in the event Dow Jones
determines to cease maintaining or
calculating the NYSE Indexes. In the
event any of the NYSE Indexes ceases to
be maintained or calculated, the
Exchange may determine not to list any
additional series for trading or limit all
transactions in such options to closing
transactions only for the purpose of
maintaining a fair and orderly market
and protecting investors.
Contract Specifications
The contract specifications for both
Mini Index Options and Micro Index
Options for each of the NYSE Indexes
are set forth in Exhibit 3 to the proposal.
The NYSE U.S. 100, the NYSE
International 100 and the NYSE World
Leaders Indexes are each broad-based,
as defined in Exchange Rule 2001(j).13
The NYSE TMT Index is a narrow-based
index, as defined in Exchange Rule
2001(i).14 Options on the NYSE Indexes
are European-style and A.M. cash-
settled. The Exchange’s standard trading
hours for index options (9:30 a.m. to
12 Telephone conversation between Samir Patel,
Assistant General Counsel, ISE, and A. Michael
Pierson, Attorney, Division, Commission (March 21,
2005).
13 ISE Rule 2001(j) defines a ‘‘market index’’ or a
‘‘broad-based index’’ to mean an index designed to
be representative of a stock market as a whole or
of a range of companies in unrelated industries.
14 ISE Rule 2001(i) defines an ‘‘industry index’’ or
a ‘‘narrow-based index’’ to mean an index designed
to be representative of a particular industry or a
group of related industries.
PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
4:15 p.m., New York time), as set forth
in Rule 2008(a), will apply to the NYSE
Indexes. Exchange rules that are
applicable to the trading of options on
both broad-based indexes and narrow-
based indexes will apply to the trading
of Mini Index Options and Micro Index
Options.15 Specifically, the trading of
Mini Index Options and Micro Index
Options on the NYSE Indexes will be
subject to, among others, Exchange rules
governing sales practice rules, margin
requirements, trading rules, and
position and exercise limits.
For each of the broad-based NYSE
Indexes, the Exchange proposes to
establish aggregate position and exercise
limits for Mini Index Options at 50,000
contracts on the same side of the
market, provided no more than 30,000
of such contracts are in the nearest
expiration month series. The Mini Index
Options contracts shall be aggregated
with Micro Index Options contracts,
where ten (10) Micro Index Options
contracts equal one (1) Mini Index
Options contract. For the narrow-based
index, the aggregate position and
exercise limits shall be as set forth
under Rule 2005(a)(3).
The Exchange proposes to apply
index margin requirements for the
purchase and sale of options on the
NYSE Indexes. Accordingly, purchases
of put or call options with 9 months or
less until expiration must be paid for in
full. Writers of uncovered put or call
options must deposit/maintain 100% of
the option proceeds, plus 15% of the
aggregate contract value (current Index
level × $100), less any out-of-the-money
amount, subject to a minimum of the
option proceeds plus 10% of the
aggregate contract value for call options
and a minimum of the option proceeds
plus 10% of the aggregate exercise price
amount for put options.
The Exchange proposes to set strike
price intervals at 21⁄2 points for certain
near-the-money series in near-term
expiration months when each of the
NYSE Indexes is at a level below 200,
and 5 point strike price intervals for
other options series with expirations up
to one year, and 25 to 50 point strike
price intervals for longer-term options.
Accordingly, since the current Mini
Index Options level for each of the
NYSE Indexes is 576.38, 450.57, 527.34
and 506.09, the Exchange shall set strike
price intervals at 5 points for the Mini
Index Options. Since the current Micro
Index Options level for each of the
NYSE Indexes is 57.64, 45.06, 52.73 and
50.61, the Exchange shall set strike price
intervals at 21⁄2 points for the Micro
Index Options. The minimum tick size
15 See ISE Rules 2000 through 2012.
29MRN1
 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
for series trading below $3 shall be 0.05,
and for series trading at or above $3
shall be 0.10.
The Exchange proposes to list Mini
Index Options and Micro Index Options
in the three consecutive near-term
expiration months plus up to three
successive expiration months in the
March cycle. For example, consecutive
expirations of January, February, March,
plus June, September, and December
expirations would be listed.16 In
addition, long-term option series
(‘‘LEAPS’’) having up to 36 months to
expiration may be traded.17 The interval
between expiration months on the Mini
Index Options or Micro Index Options
shall not be less than six months. The
trading of any LEAPS on Micro Index
Options and Mini Index Options shall
be subject to the same rules that govern
the trading of all the Exchange’s index
options, including sales practice rules,
margin requirements, trading rules, and
position and exercise limits.
Except for the further reduced value
given to the Micro Index Options, all of
the specifications and calculations for
the Micro Index Options shall be the
same as those used for the Mini Index
Options. The Micro Index Options will
trade independently of and in addition
to the Mini Index Options, and both
products shall be subject to the same
rules that presently govern the trading
of Exchange index options, including
sales practice rules, margin
requirements, trading rules, and
position and exercise limits.
Surveillance and Capacity
The Exchange represents that it has an
adequate surveillance program in place
for options traded on the NYSE Indexes,
and intends to apply those same
program procedures that it applies to
the Exchange’s other index options.
Additionally, the Exchange is a member
of the Intermarket Surveillance Group
(‘‘ISG’’) under the Intermarket
Surveillance Group Agreement, dated
June 20, 1994. The members of the ISG
include all of the U.S. registered stock
and options markets: the American
Stock Exchange, the Boston Stock
Exchange, the Chicago Board Options
Exchange, the Chicago Stock Exchange,
the National Stock Exchange, the
National Association of Securities
Dealers, the New York Stock Exchange,
16 See
ISE Rule 2009(a)(3).
17 See
ISE Rule 2009(b)(1). The Exchange is not
listing reduced value LEAPS on either of the
Reduced Value NYSE Indexes or Reduced Value
Micro NYSE Indexes pursuant to ISE Rule
2009(b)(2). Telephone conversation between Samir
Patel, Assistant General Counsel, ISE, and A.
Michael Pierson, Attorney, Division, Commission
(March 8, 2005).
VerDate jul<14>2003 17:01 Mar 28, 2005 Jkt 205001
the Pacific Stock Exchange and the
Philadelphia Stock Exchange. The ISG
members work together to coordinate
surveillance and investigative
information sharing in the stock and
options markets. In addition, the major
futures exchanges are affiliated
members of the ISG, which allows for
the sharing of surveillance information
for potential intermarket trading abuses.
The Exchange represents that it has
the system capacity to adequately
handle all series that would be
permitted to be added by this proposal
(including LEAPS). The Exchange
provided to the Commission
information in a confidential
submission that supports its system
capacity representations.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) of the Act,18 in general, and
furthers the objectives of section
6(b)(5),19 in particular, in that it will
permit trading in both Mini Index
Options and Micro Index Options
pursuant to rules designed to prevent
fraudulent and manipulative acts and
practices and promote just and equitable
principals of trade.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The ISE believes that the proposed
rule change does not impose any burden
on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
A. By order approve such proposed
rule change; or
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
PO 00000 Frm 00151 Fmt 4703 Sfmt 4703
15967
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form http://www.sec.gov/
rules/sro.shtml); or
• Send an E-mail to rule-
comments@sec.gov. Please include File
No. SR-ISE–2004–27 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR-ISE–2004–27. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commissions
Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the ISE. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR-ISE–2004–27 and should be
submitted by April 19, 2005.
E:\FR\FM\29MRN1.SGM 29MRN1
 15968 Federal Register / Vol. 70, No. 59 / Tuesday, March 29, 2005 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.20
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1380 Filed 3–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51420; File No. SR–NASD–
2005–003]
Self-Regulatory Organizations; Order
Granting Approval to Proposed Rule
Change To Amend Rule 4350(n) and
IM–4350–7 To Conform the Time Frame
for the Disclosure of a Waiver to a
Company’s Code of Conduct to the
Time Frame Required for Similar
Disclosure by the Commission’s Form
8–K
March 23, 2005.
On January 12, 2005, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), through its subsidiary, the
Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend NASD Rule 4350 and
related interpretive material to conform
the time frame for the disclosure of a
waiver to a company’s code of conduct
to the time frame required for similar
disclosure by the Commission’s Form 8–
K. The proposed rule change was
published for comment in the Federal
Register on February 18, 2005.3 The
Commission received no comments on
the proposal.
NASD Rule 4350(n) and interpretive
material IM–4350–7 require issuers
listed on Nasdaq to adopt codes of
conduct that are applicable to all
directors, officers, and employees. Each
code of conduct must require that any
waiver of the code for executive officers
or directors may be made only by the
board of directors of the issuer and must
be disclosed to shareholders, along with
the reasons for the waiver. The rule
specifies that issuers (other than foreign
private issuers) must disclose such
waivers in a Form 8–K within five
business days. The proposed rule
change would amend the rule and
interpretive material to require such
disclosure within four business days.
20 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 51197
(February 14, 2005), 70 FR 8414 (February 18,
2005).
VerDate jul<14>2003 17:01 Mar 28, 2005 Jkt 205001
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
association,4 and, in particular, the
requirements of section 15A(b)(6) of the
Act.5 The Commission believes that the
proposed timing for disclosure of
waivers is consistent with similar
requirements of Commission rules
concerning disclosure of waivers by
issuers (other than foreign private
issuers) for principal executive,
financial, and accounting officers.6
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,7 that the
proposed rule change (File No. SR–
NASD–2005–003) be, and it hereby is,
approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.8
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1385 Filed 3–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51419; File No. SR–Phlx–
2005–11]
Self-Regulatory Organizations; Order
Approving Proposed Rule Change by
the Philadelphia Stock Exchange, Inc.
and Notice of Filing and Order
Granting Accelerated Approval to
Amendment No. 1 Relating to an
Amendment to Its By-Laws To Replace
an On-Floor Equity Governor Position
With an On-Floor Philadelphia Board of
Trade Governor Position
March 23, 2005.
I. Introduction
On January 31, 2005, the Philadelphia
Stock Exchange, Inc. (‘‘Phlx’’ or the
4 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
5 15 U.S.C. 78o–3(b)(6).
6 Item 406(a) of Regulations S–K and S–B (17 CFR
229.406(a) and 228.406(a)) requires an issuer to
disclose whether the issuer has adopted a code of
ethics that applies to its principal executive officer,
principal financial officer, principal accounting
officer or controller, or persons performing similar
functions. Issuers are also required to disclose
waivers of the code that are granted to those
individuals. See Item 5.05(b) of Form 8–K (17 CFR
249.308). Recent amendments to Form 8–K shorten
the time frame for this disclosure from five business
days to four business days. See Securities Act
Release No. 8400 (March 16, 2004), 69 FR 15594
(March 25, 2004). These amendments were effective
August 23, 2004.
7 15 U.S.C. 78s(b)(2).
8 17 CFR 200.30–3(a)(12).
PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 E:\FR\FM\29MRN1.SGM
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend its By-laws to replace an On-
Floor Equity Governor position on the
Exchange’s Board of Governors with an
On-Floor Philadelphia Board of Trade,
Inc. (‘‘PBOT’’) Governor position. On
March 17, 2005, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 The proposed rule change was
published in the Federal Register on
February 9, 2005.4 No comment letters
were received on the proposal. This
order approves the proposed rule
change, as amended, and grants
accelerated approval to Amendment No.
1.
II. Description of the Proposal
Under the proposal, Article IV,
Section 4–1 of the Phlx’s By-laws would
be amended to change the composition
of the Phlx’s Board of Governors.
Currently, two of the On-Floor
Governors must be industry Governors
who are members primarily engaged in
business on the Exchange’s Equity Floor
or general partners, executive officers
(vice president and above) or members
associated with member organizations
primarily engaged in business on the
Exchange’s Equity Floor. The Exchange
proposes to replace one of these On-
Floor Equity Governor positions with an
On-Floor PBOT Governor position. Any
On-Floor PBOT Governor must be a
member of PBOT, which is a subsidiary
of the Exchange.
In addition, Article III, Sections 3–6 of
the Phlx’s By-laws would be amended
to provide that recommendations for the
PBOT Governor candidate would be
submitted to the Exchange’s Nominating
and Elections Committee by the PBOT
Board of Governors.
The Exchange believes that the
revised Board of Governors
composition, with a PBOT
representative Governor, more
accurately represents the strategic
ownership and on-going business
interests of the Exchange, while still
affording appropriate proportional
representation of On-Floor Governors—
with three On-Floor Equity Options
Governors, one On-Floor Equity
Governor and one On-Floor PBOT
Governor.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, the Exchange revised the
statutory basis section of the proposed rule change.
4 See Securities Exchange Act Release No. 51127
(February 2, 2005), 70 FR 6918.
29MRN1